AMERICAN EXPRESS CO. $50 (New York symbol AXP, Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.2 billion; Market cap: $60.0 billion; Price-to-sales ratio: 2.0; Dividend yield: 1.4%; TSINetwork Rating: Average; www.americanexpress.com) gets most of its revenue from the fees it charges merchants when consumers use its credit and charge cards. It also provides travel-agency services.
The company’s cardholders have above-average credit scores and income. As a result, most of them pay their bills on time. The improving economy is also pushing up its travel-related fees.
In the three months ended March 31, 2011, American Express earned $1.2 billion, or $0.97 a share. That’s up 33.0% from $885 million, or $0.73 a share, a year earlier. The company continues to set aside less money to cover bad loans: its loan-loss provisions fell 89.7%, to $97 million from $943 million.
Revenue rose 7.2% in the quarter, to $7.0 billion from $6.6 billion. That’s mainly because spending by the company’s cardholders rose 17% as the economy improved. However, lower interest rates have dampened income from its investment portfolio.
The stock trades at just 13.0 times the $3.85 a share that American Express is likely to earn in 2011. However, the company plans to increase spending on rewards programs and other customer incentives. That could slow its earnings growth.
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